...three questions to be answered in this chapter. 1. Is activity-based costing (ABC) enough by itself to improve efficiency? Can cost managers ensure that an organization will meet its efficiency goals merely by measuring costs more accurately by using ABC? 2. Does the cost manager’s responsibility end with making recommendations for improvements? Are the numbers generated by ABC, by themselves, enough to guide managers to correct decisions regarding resource use? 3. How does one know that activity-based methods of cost management are worthwhile? B. Learning Objectives — This chapter has six learning objectives. 1. The key steps of an activity-based management system are presented. 2. How to use activity-based costing for target costing. 3. Ways to identify and measure the costs of activities that do or do not add value in organizations. 4. How the elements of an ABM system can help to identify opportunities for process improvements. 5. Evaluate capacity utilization by identifying resources supplied and resources used. 6. Understand the methods and the problems of implementing ABC and ABM. C. Activities-based Management (ABM) allows managers to evaluate costs and values of process activities to identify opportunities for improved efficiency. 1. Activity-based costing (ABC) focuses on (1) understanding how resources are used in current processes...
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...Based Costing Executive Summary Heryzin Baskerville National Graduate School of Quality Management Robert Kaplan introduced Activity Based Costing (ABC) in the late 1980s. It can be considered as the modern alternative to absorption costing, and allowing managers to better understand product and customer net profitability. Kaplan view is that the ABC target state will provide organization leadership with better information to make value-based decisions. Over the past 15 years, activity-based costing has enabled managers to see that not all revenue is good revenue, and not all customers are profitable customers. Unfortunately, the difficulties of implementing and maintaining traditional ABC systems have prevented activity-based cost systems from being an effective, timely, and up-to-date management tool. Many companies have abandon ABC because it does not capture complexities of their operation, takes too long to implement, and too expensive to build and maintain. ABC focuses attention on cost drivers, the activities that cause costs to increase. Traditional absorption costing tends to focus on volume-related drivers, such as labor hours, while ABC also uses transaction-based drivers, such as number of orders received. In this way, long-term variable overheads, traditionally considered fixed costs, can be traced to products. Some considerations that need to be examined prior to implementing ABC are fully understanding the resource implications of implementing, having...
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...production needed by a company can be achieved by providing cost incurred relative to the prices in the market or the prices set for the objective achievements are actualized. There are several techniques put forwards by companies to ensure profit generation during their operations. Some of these techniques includes target costing, benchmarking and activity-based budgeting. Target costing This is not a new idea as far as a successful companies operation is concerned. It can be defined as the method that is implemented in determining the cost at which a product having particular parameters must the produced to ensure the required return rate is achieved.. This process entails analysis of cost that take place during the development phase and ensuring the cost is kept below the threshold (Stapenhurst, 2009). Target costing is one of the responsibilities that are pursued by the managing accountants even though several companies dramatically use a different approach. Due to the fact that target costing approach originated from a competitive environment many companies adopt a different approach in order to survive. ITT Automotive Company has been using the comprehensive target costing to ensure profitability in the sales. The fundamental objective of...
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...year 2001 where increased market openness, reduced government interference, and increased management autonomy were mandatory for China’s accession to the World Trade Organization. This change in market condition has incentivized Chinese firms to improve their management accounting practices. Subsequently, the traditional costing method is also facing a sudden threat by the influx of ABC/M, Target Costing, Responsibility Accounting, etc. Presented with new ideas, this essay will discuss the popular cost management accounting trend in China, specifically the responsibility cost control system. I will also compare the changes in the Chinese management accounting practices and give opinions on the possible future outlook of the cost and management accounting landscape. According to the research on contemporary management accounting in China by Jason Zezhong Xiao and Rong-Ruey Duh, the most widely used techniques are, cost behavior analysis, cost allocation, responsibility accounting, and cost-volume-profit (CVP) analysis. On the other hand, the lowest levels of adoption are techniques like the activity-based costing/management, kaizen costing, standard costing, and environmental accounting. This result is gathered by providing the firms with 25 management accounting practices and asking them to feedback the extent to which they applied each of the 25 practices in the running of their businesses. Results showed that the responsibility cost control system, together with CVP analysis...
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...Introduction to Contemporary Managerial Accounting Concepts 1. 2. Value Chain a. Just in Time (JIT) b. Total Quality Management (TQM) c. Theory of Constraints 3. 4. 5. 6. 7. 8. 9. Target Costing Kaizen Costing Life Cycle Costing (LCC) Pricing Methods Uses and Limitations of Cost-Based and Market-Based Pricing Factors Affecting Prices Pricing Models for Not-for-Profit Organizations 3 4 5 5 6 7 8 9 10 11 11 Page Chapter Two: Total Quality Management (TQM) – an Introduction and Its Applications Chapter Three: Conclusion Appendix 1: References 12 23 CHAPTER ONE: INTRODUCTION TO CONTEMPORARY MANAGERIAL ACCOUNTING CONCEPTS Over the years, the managerial accounting practices had evolved. From the traditional costing method, many firms now have adopted the contemporary managerial practices to achieve better product costing and manufacturing processes. There are many contemporary managerial accounting in practice, some of them being Value Chain, Just-In-Time (JIT) Manufacturing, Total Quality Management (TQM) and the Theory of Constraints (TOC). All of the mentioned concept will be explained in brief in this chapter. Other than that, Target Costing will also be highlighted in brief. Kaizen Costing, a Japanese concept adapted by the westerners, will also be introduced. This chapter will also touch on life cycle costing (LCC), pricing methods, uses and limitations of cost-based price & market based price, factors affecting prices...
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...2008 Betty W. Steadman 135 IMPLEMENTING THE ACTIVITY BASE COSTING SYSTEM: A CASE STUDY ON DAKOTA OFFICE SUPPLY By Betty W. Steadman Overview Activity Based Costing (ABC) is an accounting method that allows an organization to determine actual costs associated with each product and/or service produced by the organization without regard to the organizational structure or other extraneous function. For Dakota Office Products (DOP), its existing costing system was inadequate because it is incapable of accounting for even all of the known costs such as the desktop delivery service as well as hidden costs such as the 10% DOP paid to maintain its working capital line of credit for accounts receivable (Kaplan, 2003, p.4). Since ABC is a powerful tool for measuring performance, identifying, describing, and assigning costs to, and reporting on an organization’s operations it could solve much of DOP’s critical cost oversights (Caplan, Melumad & Ziv, 2005). Used holistically ABC can be utilized to also improve processes and identify opportunities to improve business effectiveness and efficiency by determining the true or real costs of a given product or service. ABC principles are used to focus management’s attention on the total cost to produce a product or service, and as a basis for full cost recovery of a production or service process. Situational Analysis DOP is a regional office supply company with a strong reputation for customer service and quality supplies. Additionally...
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...Module 5 Assignment 2: Manufacturing Budget Analysis Budgets are used for two distinct purposes—planning and control. Planning includes developing goals and preparing various budgets to achieve those goals. Control includes gathering feedback to ensure that the plan is being properly executed or modified as business circumstances change. To be effective, a good budgeting system must provide for both planning and control. Good planning without effective control is a waste of time and effort (Garrison, Noreen, & Brewer, 2012, p. 336). Budgetary control is an important tool in business decision-making processes, but for Ferguson & Son, they have been using the control system inefficiently. Budgetary control should help corporate executives monitor expenses and adjust operations accordingly. For example, senior management may reduce expenses in one department and increase the budget of another business unit based on performance indicators. For the issues with Ferguson & Son, Tom Emory’s statement regarding not knowing if the accounting department’s reports would reflect a good or bad performance shows a lack of communication within the organization. It seems the accounting department and the business owners are not communicating well because the business owners are not being kept informed of how they are performing and accounting is unaware of the business reasons behind the expense fluctuations. This creates inefficiency in reporting and management may make...
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...TABLE OF CONTENTS ACKNOWLEDGEMENT 2 INTRODUCTION 3 CONTENT 4 1.0 DEFINITION OF TARGET COSTING 4 2.0 THE PURPOSE OF TARGET COSTING 4 3.0 CHARACTERISTIC OF TARGET COSTING 4 4.0 PRIMARY PROCESS OF TARGET COSTING 5 5.0 LIFE CYCLE COSTING 6 6.0 COST REDUCTION EFFORT 6 7.0 ADVANTAGES OF TARGET COSTING 7 CONCLUSION 9 APPLICATION TO INDUSTRY 9 REFERENCES 10 ACKNOWLEDGEMENT In performing our assignment, we had to take the help and guideline of some respected person, who deserve our greatest gratitude. In the completion of this assignment give us much pleasure. We would to gratitude Dr. Rosiatimah Mohd Isafor giving a good guideline for the assignment throughout numerous consultations. We would also like to expend our deepest gratitude to all those who have directly or indirectly guided us in writing this assignment. Many people, especially our classmates and team members itself, have made valuable comment suggestions on this proposal which gave us an inspiration to improve our assignment. We thank all the people for their help directly and indirectly to complete our assignment. INTRODUCTION Organization might have a number of objectives such as customer satisfaction with the good quality of product that company produced, achieving a high level of market penetration, providing a good work environment to their employees and being able to achieve high revenue. Therefore, there is a number of strategic management accounting techniques that can be...
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...two decades of the 20th Century on, many companies have adopted production strategies that could be termed “lean manufacturing”. Lean team leaders state that traditional costing systems fail to properly assess their operational improvements and therefore ask for new cost accounting methods. The search for a new accounting paradigm has led to important applied research and several accounting methods. With the diversification of customer demand and competition of globalization, mass production is being replaced by lean production. In this background, the traditional accounting system is no longer applicable to lean production, and lean accounting supporting lean production comes into being. This paper introduces the background of lean accounting and the content of lean accounting, gives the measures of implementing lean accounting, finally compares lean accounting with traditional accounting and summarizes obstacles in the process of implementing lean accounting. The research and application of lean accounting will greatly enhance the competitive advantage. It show the state of the art in costing techniques used in companies that adopt lean manufacturing practices. Keywords: Lean manufacturing, Lean accounting, Principle, Practice Tools, Traditional accounting, Activity Based costing and Standard Costing....
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...production and costs. The use of the ABC system is not always the most popular way for companies to go, but is it worth it? ABC Systems: Worth the Work? Activity Based Costing or as it is more commonly labeled “ABC” is a costing system that firsts assigns cost to activities and then assigns them to product based activities used towards that product. Costs are assigned to activities in a detailed manor so that detailed costs per activity are available. Once costs are assigned to activities they are than assigned to products based on the products use of that resource. ABC techniques allow businesses to decide which products, services, and resources are increasing their profitability, by providing more detailed information to management. The implementation of an ABC costing method it not right for all corporations; however for the corporations that fit the model for an ABC system, managers are more educated to make informed decisions about the true cost of a product. The use of this system allows more accurate and cost effective: pricing, costing, process improvements, product design, and manufacturing. Although the ABC method of costing has decreased over the last decade it still does have its purpose and can be very helpful to many corporations by providing detailed accurate information for costing purposes. “ABC has stagnated over the last five to seven years.” (Kaplan) Since overhead costs are a large portion of the costs associated with a...
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...continuous learning and improvement activities and | | |serves as a linkage between strategy and execution of that strategy. | |Learning outcomes |At the end of this course, students are able to: | | |Compare and explain about costs and the best ways to make better decisions in the selection of products, price and investments. [C4] | | |Prepare and produce a budget, understand chain processes and apply the said techniques. [P4] | | |Utilise strategic costing, understand and implement ways to review inventory and quality, and...
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...journal is available at www.emeraldinsight.com/0951-3574.htm AAAJ 21,2 Strategic management accounting: how far have we come in 25 years? Kim Langfield-Smith Monash University, Melbourne, Australia Abstract Purpose – The purpose of this paper is to provide a review of the origins of strategic management accounting and to assess the extent of adoption and “success” of strategic management accounting (SMA). Design/methodology/approach – Empirical papers which have directly researched SMA and prior review papers of the adoption and implementation of SMA or SMA techniques are reviewed. As well as assessing the extent of adoption of SMA and the reasons underlying an apparent low adoption rate, the role of accountants in adopting and implementing SMA is considered. Finally, the success or otherwise of SMA is discussed. Findings – SMA or SMA techniques have not been adopted widely, nor is the term SMA widely understood or used. However, aspects of SMA have had an impact, influencing the thinking and language of business, and the way in which we undertake various business processes. These issues cut across the wider domain of management, and are not just the province of management accountants. Research limitations/implications – There is limited value in conducting future surveys of the adoption and implementation of SMA or SMA techniques. Rather, the focus should be on how SMA-inspired techniques and processes diffuse into general practice within organizations. Originality/value...
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...(a) Characteristics of an organization contributing to the use of activity based techniques Activity Based Costing (ABC) is a costing methodology used to trace overhead costs directly to cost objects, i.e. products, processes, services, or customers. Costs are assigned to specific activities (e.g. engineering, manufacturing or purchasing) based on their use of resources and costs are assigned to cost objects based on their use of activities. ABC recognizes the causal relationship of cost drivers to activities. ABC techniques enable a business to decide which products, services, and resources are increasing their profitability, and which are contributing to losses. Certain organizations appear to be more successful in implementing ABC than others. ABC helps the managers in these organizations to make the right decisions regarding product mix, pricing, process improvements and product designs. Closer look reveals characteristics of an organization such as structure, product range or environment contributing to these successes. Cost Structure Where overhead costs comprises major portion of product costs as compared to direct costs such as direct labour and direct materials, correctly attributes overhead costs to product is highly important. In modern business, service departments plays a more and more important role than in the past in which production department is mainly responsible for key manufacturing activities. Overall product and service costs are more influenced...
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...supports continuous learning and improvement activities and | | |serves as a linkage between strategy and execution of that strategy. | |Learning outcomes |At the end of this course, students are able to: | | |Compare and explain about costs and the best ways to make better decisions in the selection of products, price and investments. [C4] | | |Prepare and produce a budget, understand chain processes and apply the said techniques. [P4] | | |Utilise strategic costing, understand and implement ways to review inventory and quality, and...
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...Running Head: PUBLIX CMT Contemporary Management Technique for Publix Target Costing Rationale Publix Super Markets, Inc. is a primarily Florida established grocery store chain which employees over 120,000. Currently, Publix serves over one million customers each day and is also one of the largest employee-owned businesses in the world. Moreover, the company is one of Florida’s leading supermarkets and has tailored to most cultural trends in the grocery industry-organic foods; health foods, natural foods, prepared meals, ethnic ingredients, etc. Publix grocery has benefited from great success in the industry and has expanded out of primary market, Florida. However, with the arrival of globalization impacting margins in almost every industry, the food retailing/supermarket industry has now joined the trend. International and domestic food retailers around the globe have started to internationalize at a brisk rate and open operations around the globe (Mujtaba & Franklin, 2007). The right product pricing is one of the most important matters concerning the growth of companies’ financial performance. Prices should be low enough to draw in customers; however, simultaneously high enough to cover all costs and anticipated profits. Research in the supermarket industry indicates that nine percent of customers leave and shop elsewhere because they think prices are too high. The supermarket business is becoming more and more concentrated as large regional chains such as...
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